Lifetime ISA rules have changed: what it means for you

Date: Thursday 29th October, 2026

The Lifetime ISA withdrawal charge has been reduced from 25% to 20% if you're buying your first home above the £450,000 property price cap. In practice, that means you get back what you paid in, plus any interest earned on your own money. You lose the government bonus, but not your savings.

Buy under £450,000 and nothing changes. You keep your 25% bonus, exactly as before.

Here's what's changed, what hasn't, and what it means if you're saving towards a first home.

What's actually changed

Until now, buying a first home over £450,000 left Lifetime ISA savers with a difficult choice. Withdraw, and a 25% charge applied to your whole balance. That took back more than the government had given you, so you ended up with less than you'd saved.

From 29th October 2026, that charge drops to 20% for qualifying first-home purchases above the cap. The government recoups the bonus it paid, and the growth on that bonus. Your own contributions, and the interest they earned, stay with you.

The change applies to eligible withdrawals made on or after 29th October 2026. Moneybox campaigned for this alongside others in the industry.

The maths, with real numbers

Say you pay in £4,000 over a year. The government adds its 25% bonus, so £1,000. Your balance is £5,000. Add 5% interest and you're at £5,250.

Under the old 25% charge: £1,312.50 comes off, leaving £3,937.50. That's less than the £4,000 you paid in.

Under the new 20% charge: £1,050 comes off, leaving £4,200. That's your original £4,000, plus the £200 of interest your own money earned.

The difference is the principle behind the change. A 20% charge on the total reclaims exactly what the government put in, and nothing more.

If you have a Stocks & Shares Lifetime ISA

The outcome depends on how your investments have performed.

If your account has grown, the maths works the same way as above. If it has fallen in value, you could still get back less than you paid in. A 20% charge on a balance of £4,750 takes £950 and leaves you with £3,800, even though you contributed £4,000.

So the lower charge protects your contributions when your account has held its value or grown. It isn't a guarantee that you'll get your money back.

Who this change helps most

If you're buying in London or the South East, this is the change that matters. Property prices in those areas have long outpaced the £450,000 cap, which has sat unchanged since the Lifetime ISA launched in 2017.

It also helps anyone whose plans have shifted since they opened an account. You might have started saving for a £350,000 flat and found yourself buying a £470,000 house with a partner. Previously that meant losing a slice of your own savings. Now it doesn't.

Can you still open a Lifetime ISA?

Yes, for now. If you're aged 18 to 39, you can open a Lifetime ISA until April 2029, after which it'll close to new savers, an the new First Time Buyer ISA is expected to launch.

If you already have one, or open one before April 2029, you can keep paying in and using it under the current rules. However, those rules are subject to change.

What you could do now

• If you already have a Lifetime ISA: this tax year's allowance resets each April, and unused allowance doesn't roll over. Topping up before 5th April means more of this year's bonus.

• If you're weighing one up: opening an account starts the 12-month clock, even if you only pay in a small amount to begin with.

• If you've been put off by the cap: it's worth revisiting the numbers. The reason many people avoided the Lifetime ISA was the risk of losing their own money. That risk has been reduced.

Plans change, and so do property prices. The point of this change is that your savings are no longer penalised when they do.

You’ll pay a 25% government withdrawal charge on any amount you withdraw, unless you’ve had the account open for 12 months and are using the money towards buying your first home costing £450,000 or less, or you’re aged 60 or over. If your qualifying first home costs more than £450,000, a reduced 20% charge applies.

The 20% charge is designed so you get back what you paid in. It takes back the 25% government bonus rather than some of your own savings. The charge also applies to interest or investment growth, and if your account value has fallen you could still get back less than you paid in.

Tax treatment depends on individual circumstances and may be subject to change in the future.